Home Inns Reports First Quarter 2010 Financial Results

First Quarter 2010 Financial Highlights

Total revenues for the first quarter increased 28.3% year over year to RMB 682.9 million (US$100.0 million), exceeding the guidance range of RMB 650 million to RMB 670 million.

Net income attributable to Home Inns' shareholders for the quarter was RMB 46.1 million (US$6.7 million), including share-based compensation expenses of RMB 9.4 million (US$1.4 million), gain on buy-back of convertible bonds of RMB 0.5 million (US$0.07 million) and foreign exchange loss of RMB 0.3 million (US$0.05 million). This compares to a net income attributable to Home Inns' shareholders of RMB 0.5 million (US$0.07 million) in the first quarter of 2009, which included gain on buy-back of convertible bonds of RMB 16.4 million (US$2.4 million), share-based compensation expenses of RMB 8.1 million (US$1.2 million) and foreign exchange gain of RMB 0.04 million (US$0.01 million).

Income from operations for the quarter was RMB 61.6 million (US$9.0 million), compared to a loss from operations of RMB 17.1 million (US$2.5 million) in the same period of 2009. Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 71.0 million (US$10.4 million) for the quarter, compared to a loss of RMB 9.0 million (US$1.3 million) in the same period of 2009. 

EBITDA (non-GAAP) for the quarter was RMB 145.7 million (US$21.3 million). Excluding gain from buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted EBITDA (non-GAAP) for the quarter was RMB 154.9 million (US$22.7 million), compared to RMB 60.4 million (US$8.8 million) in the same period of 2009, representing a year-over-year increase of 156.2%.

Diluted earnings per ADS for the quarter were RMB 1.08 (US$0.16), while adjusted diluted earnings per ADS (non-GAAP) for the quarter were RMB 1.30 (US$0.19).

Diluted earnings per ADS and adjusted diluted earnings per ADS (non-GAAP) exclude gain on buy-back of convertible bonds. Adjusted diluted earnings per ADS (non-GAAP) also exclude foreign exchange loss and share-based compensation expenses. Please refer to "Reconciliations of GAAP and Non-GAAP Results" at the end of this press release.

"Our first quarter performance continued to benefit from our strategic initiatives and a strengthening Chinese economy. Our key metrics compared favorably not only to our 2009 results a year ago but also our historical peaks in 2008," said Mr. David Sun, Home Inns' Chief Executive Officer. "Together with effective cost control measures, the upwardly trending performance of our mature hotels and a carefully balanced ratio of franchised to leased hotels, we are expecting to deliver steady margins in the upcoming quarters, even as we add new units to our network of hotels."

Operational Highlights
During the first quarter of 2010, Home Inns opened a net of 22 franchised-and-managed hotels. As of March 31, 2010, the Home Inns hotel chain operated across 121 cities in China, with 638 hotels of which 390 were leased-and-operated hotels, including one H Hotel (Home Inns' premium brand hotel), and 248 were franchised-and-managed hotels. The average number of guest rooms per hotel was 116.

As of March 31, 2010, Home Inns had an additional 13 leased-and-operated hotels and 70 franchised-and-managed hotels contracted.

As of March 31, 2010, Home Inns had 2.8 million active non-corporate members, representing a 100% increase from 1.4 million as of March 31, 2009. Non-corporate members consistently contribute to more than 50% of room nights sold.
The occupancy rate for all hotels in operation was 90.5% in the first quarter of 2010, compared with 82.6% in the same period in 2009 and 92.9% in the previous quarter. The year-over-year increase was mainly due to continued improvements in macroeconomic conditions in China and a less dilutive impact from fewer new hotels opened this year. The sequential decrease in occupancy resulted from normal seasonality as business activity tends to slow down in the first quarter due to the Chinese New Year holidays.

RevPAR, defined as revenue per available room, was RMB 144 in the first quarter of 2010, compared with RMB 130 in the same period in 2009 and RMB 149 in the previous quarter. The RevPAR increase year over year was attributable to a higher occupancy rate as well as a slightly higher average daily rate, or ADR. RevPAR declined sequentially as a result of the seasonality described above.

RevPAR for Home Inns' hotels that had been in operation for at least 18 months was RMB 151 for the first quarter of 2010, compared to RMB 137 for the same group of hotels in the first quarter of 2009. This positive comparison was attributable to both higher occupancy rate and higher ADR.

"We are very pleased to see our average daily rates stabilizing," continued Mr. Sun. "For the first time since our strategic expansion into lower-tier cities, the trend of gradual decline in ADR over the past quarters is now reversing. In addition, our productive effort to restore new hotel pipeline means Home Inns is on track to achieve our expansion goals for 2010 and beyond."

First Quarter 2010 Financial Results

For the first quarter of 2010, Home Inns' total revenues increased by 28.3% year over year to RMB 682.9 million (US$100.0 million).

Total revenues from leased-and-operated hotels for the first quarter of 2010 were RMB 637.1 million (US$93.3 million), representing a 27.0% increase year over year and a 3.0% decrease sequentially. The year-over-year increase was the result of a larger leased-and-operated hotel portfolio, a greater number of mature hotels, and higher RevPAR, while the sequential decline was due to seasonally lower occupancy rate in the first quarter.

Total revenues from franchised-and-managed hotels for the first quarter of 2010 were RMB 45.8 million (US$6.7 million), representing a 50.4% increase year over year and a 7.8% increase sequentially. Revenues from franchised-and-managed hotels for the quarter increased as a result of the higher number of such hotels in operation, as well as higher RevPAR as discussed above. Sequentially, the increase was due to a larger number of such hotels in operation, despite lower occupancy due to normal seasonality. Home Inns opened a net of 22 new franchised-and-managed hotels during the first quarter of 2010.

Total operating costs and expenses for the first quarter of 2010 were RMB 579.3 million (US$84.9 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter were RMB 569.9 million (US$83.5 million), or 83.5% of total revenues, representing a 12.1% increase year over year.

Total leased-and-operated hotel costs for the first quarter of 2010 were RMB 521.8 million (US$76.4 million), representing 81.9% of the leased-and-operated hotel revenues. This compared to 93.7% for the same quarter in 2009 and 77.9% for the previous quarter. The decrease in leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenue year over year was primarily due to fewer hotels under construction, resulting in substantially lower pre-opening expenses, as well as improved overall RevPAR in this quarter. The sequential increase in percentage was mainly due to lower RevPAR and hence lower revenues per hotel.

Sales and marketing expenses for the first quarter of 2010 were RMB 7.5 million (US$1.1 million) or 1.1% of total revenues, a decrease of 13.8% year over year and a decrease of 20.3% sequentially.

General and administrative expenses for the first quarter of 2010 were RMB 50.1 million (US$7.3 million). General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB 40.7 million (US$6.0 million), or 6.0% of the total revenues, compared with 5.6% of the total revenues in the same period of 2009 and 6.1% in the previous quarter.

The above resulted in income from operations for the quarter of RMB 61.6 million (US$9.0 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 71.0 million (US$10.4 million), compared to a loss ofRMB 9.0 million (US$1.3 million) in the same period of 2009 and a gain of RMB 92.9 million (US$13.6 million) in the previous quarter. The main reasons for the increase in income from operations year over year were higher revenues and better leased-and-operated hotel expense ratios, while the sequential decrease was due to seasonally lower RevPAR resulting in lower revenues.

EBITDA (non-GAAP) for the first quarter of 2010 was RMB 145.7 million (US$21.3 million). Excluding gain on buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted EBITDA (non-GAAP) was RMB 154.9 million (US$22.7 million), an increase of 156.2% from the same period a year ago.

Net income attributable to Home Inns' shareholders for the quarter was RMB 46.1 million (US$6.7 million). Adjusted net income attributable to Home Inns' shareholders (non-GAAP), which excludes gain on buy-back of convertible bonds, share-based compensation expenses and foreign exchange loss, was RMB 55.2 million (US$8.1 million) for the first quarter of 2010, compared with a net loss of RMB 7.9 million (US$1.2 million) from the same period a year ago.

For the first quarter of 2010, basic earnings per share were RMB 0.57 (US$0.08), while diluted earnings per share were RMB 0.54 (US$0.08). Basic earnings per ADS were RMB 1.15 (US$0.17), while diluted earnings per ADS were RMB 1.08 (US$0.16). Excluding gain on buy-back of convertible bonds, share-based compensation expenses and foreign exchange loss, adjusted basic earnings per share (non-GAAP) were RMB 0.69 (US$0.10), while adjusted diluted earnings per share (non-GAAP) wereRMB 0.65 (US$0.10). Adjusted basic earnings per ADS (non-GAAP) were RMB 1.38 (US$0.20), and adjusted diluted earnings per ADS (non-GAAP) were RMB 1.30 (US$0.19).

Net operating cash flow for the first quarter of 2010 was RMB 80.2 million (US$11.7 million) representing a 47% increase from first quarter of 2009. Capital expenditures incurred for the quarter were RMB 59.1 million (US$8.7 million), while related cash spent during the quarter was RMB 80.9 million (US$11.9 million) which included settlement of payables.

At the end of the first quarter of 2010, Home Inns had cash and cash equivalents of RMB 794.1 million (US$116.3 million), and the outstanding balance of its convertible bonds was RMB 326.0 million (US$47.8 million)for principal and accrued interest. During the first quarter of 2010, Home Inns repurchased and retired RMB 37.5 million (US$5.5 million) of convertible bonds.